Valuation v. Insurance under Transit Coverage Form

Our insured owns a business and often has to ship packages. He has a transit coverage form that has a $1,000 deductible. He had to ship a package valued at $2,000, and purchased an increase in valuation from the standard $100 the shipper offered to $1,000, thinking that if the package was damaged he'd at least cover his deductible.

The package was destroyed, and the goods along with it. The goods were worth $2,034. When he reported the loss to his insurer, they paid him $34, claiming that the increased valuation was actually other insurance. So our insured is now $1,000 out of pocket. Can this be correct?

Tennessee Subscriber

We reviewed a non-standard policy providing transportation coverage, and the provision for “insurance under more than one policy” refers to two possible situations. One, the other policy has the same terms and conditions as the transit policy. Obviously, this is not the case here. Two, the other policy does not have the same terms and conditions; again, this is not the case. The insured does not have a separate policy at all.

What the insured has purchased is an increase in the common carrier's liability for the package. This is not insurance; the insured has simply purchased an increase in the contractual liability for which the common carrier is responsible. Contractual liability that occurred when the shipper gave the goods to the common carrier, signed the shipping agreement, and tendered payment is not insurance.

For clarification of this matter, see, for example, the case of Nippon Fire & Marine Insurance Co. Ltd. v. Skyway Freight systems, Inc., 45 F. Supp. 2d 288 (S.D. New York 1999) in which the court refers repeatedly to the carrier's “contractual liability limitation” and an “enforceable limitation of liability clause in common carrier's contract with shipper.” It is clear that the contract does not operate as insurance, but strictly as a contract to ship goods for a fee.

Therefore, the insured is due $1,034 (minus the $34 already paid) from the insurer.

 

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